Weak factory and mortgage figures prompt recovery fears – 4538

2nd June 2011

The news prompted the pound to tumble against the dollar, closing almost two-thirds of a cent lower at $1.6401, as markets and economists decided the country is too weak to cope with a rate rise until early next year.

Analysts at Morgan Stanley added to the negative sentiment by predicting that house prices will fall a further 10% by the end of 2012, reports the Daily Telegraph. Adding to the woes, Halifax reported that house prices have already crashed 20% from their 2007 peak.

The Government has pinned its hopes for recovery on a resurgent manufacturing industry, driven by rising exports. However, the closely-watched purchasing managers' index (PMI), compiled by the Chartered Institute of Purchasing & Supply and Markit, showed that activity has fallen to a 20-month low.

More worrying was evidence output and new orders contracted last month for the first time in two years. Samuel Tombs, UK economist at Capital Economics, said in the Daily Telegraph output and new orders, at 49.9 and 48.3 respectively, suggested that "a sharp underlying slowdown in demand is taking place".

Correspondingly weak manufacturing data from the US, China and the euro area raised fresh fears that global growth is stalling.

In the Daily Telegraph, Cassandra99 says: "The man in the street has, quite rightly, a strong sense that the economy is profoundly sick despite the Pollyanna-optimism of politicians and deceivers in the financial demi-monde. The so-called fragile recovery has been phony. Money has been printed and borrowed and interest rates kept artificially low to try to re-inflate, albeit only partially, the bubble that burst in 2008…"

Labour has stepped up its calls for George Osborne to rein in his public spending cuts after fresh evidence that Britain may be on course for a double-dip recession, adds the Guardian.

A Treasury spokesman said in the report: "Recovering from such a deep recession is bound to be choppy, as the chancellor has made clear. That's why the government announced measures to support growth in the budget.

"But the budget was just the first step, and the growth review launched last year will continue for the whole parliament, to ensure government is doing all it can to support private sector-led growth and job creation."